Hiring your child in your business offers major tax savings and long-term financial benefits. Check Below and Discover smart family tax planning for 2025.
Why You Should Hire Your Children: 2025 Tax-Smart Strategy for Business Owners
1. The Tax Advantage of Hiring Your Child
When you hire your child as a legitimate employee in your business, you’re effectively shifting taxable income from your higher tax bracket to your child's much lower (or zero) bracket. Thanks to the standard deduction, children can earn up to $14,000 (2025 estimate) without paying any federal income tax. Instead of paying 30% or more on that income yourself, you pay 0% tax—legally—through your child’s tax-free earnings.
2. Payroll Tax Savings (If Structured Right)
If your business is a sole proprietorship, partnership (with both spouses), or single-member LLC, the benefits get even better:
- No Social Security or Medicare taxes (FICA)
- No Federal Unemployment Tax (FUTA)
- No payroll tax reporting (in some cases)
This exemption applies only if the child is under age 18 and the business structure qualifies. If your business is an S Corporation or C Corporation, payroll taxes still apply—but there are ways to mitigate this.
3. What Jobs Can Your Child Legally Perform?
The key is reasonable and age-appropriate work. Your child must perform actual services that benefit the business, and you must pay fair market wages.
- Social media management
- Website content creation
- Graphic design assistance
- Filing, organizing documents
- Office cleaning or maintenance
- Customer service or answering calls
- Packing, labeling, inventory support
4. What Can the Child's Income Be Used For?
Your child’s wages cannot be used to pay for food, housing, or clothing—those are considered parental responsibilities. However, the income can be used for:
- Extracurricular activities (e.g., sports, music lessons)
- Tech devices (laptops, phones)
- Travel expenses for family vacations (their share)
- Birthday gifts or personal expenses
- Roth IRA contributions
5. Bonus Benefit: Roth IRA for Kids
When your child earns income, they become eligible to contribute to a Roth IRA. With compounding returns, early contributions can grow into hundreds of thousands by retirement—completely tax-free.
Additional benefits of a Roth IRA:
- Principal can be withdrawn anytime without penalty
- Funds can be used for college, first home, or emergencies
- Teaches financial literacy and investing early
6. IRS Compliance: Do It Right
The IRS treats this as a real employment relationship. To stay compliant:
- Issue a W-2 to your child
- Document hours worked and job responsibilities
- Pay via check or direct deposit (not cash)
- Keep payroll and time records
- Pay reasonable wages based on market value
7. Special Note: S Corporation and C Corporation Considerations
If your business is an S Corp or C Corp, payroll taxes apply even for children under 18. However, you may still benefit from income shifting, dependent credits, and other deductions. Some families use a sole proprietorship to pay children and contract with their S Corp—consult your CPA before implementing this strategy.
8. Summary Table: Why Hire Your Child in 2025
| Benefit | Description |
|---|---|
| Income shifting | Move income from parent’s high tax bracket to child’s tax-free bracket |
| No income tax | Up to $14,000 income tax-free via standard deduction |
| No payroll tax | Exempt from FICA & FUTA (if under age 18 in sole prop/partnership) |
| Roth IRA eligibility | Start tax-free retirement investing at a young age |
| Financial education | Teach kids money management and work ethic |
Conclusion
Hiring your child is more than just a tax loophole—it’s a powerful family wealth-building strategy. In 2025, this IRS-approved method still offers incredible benefits, including lower taxes, smarter retirement planning, and valuable life skills for your child.
- Shift income to a lower tax bracket
- Avoid unnecessary payroll taxes
- Build your child’s Roth IRA early
- Teach responsibility and finance from a young age
So why not hire your child this year? It’s one of the smartest moves you can make—for your business and your family.
